Panel Varies ASIC Decision in Federation Bid for Pinnacle

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The Takeovers Panel advises that it has varied a decision by ASIC in relation to an application by Federation Group Ltd. The application was for a modification of the Corporations Law to allow Federation to exercise options in Pinnacle VRB Ltd which would increase Federation's voting power above the 20% threshold. The Panel received the application on Thursday 25 January.

Under the original relief granted by ASIC, Federation was allowed to exercise the options and acquire the shares, but was required to sell within 14 days, any shares it acquired by exercising the options that would give it more than 20% of the voting rights in Pinnacle ("the excess shares"). The Panel has removed the requirement to sell the excess shares.

Federation made takeover offers dated 2 October 2000, for all of the shares in Pinnacle, and for the two series of listed Pinnacle options. Those bids have now closed. Under its bids, Federation acquired 10.6% of the voting shares in Pinnacle and 50% and 5% of the two sets of options. One series of the options expired on 1 February 2001, the second on 31 January 2002. Federation would have an interest in between 18.92% and 24.45% of the voting shares of Pinnacle if it exercised all of the options (depending on how many options were exercised by others).

The Panel accepted the proposition that the market, and Pinnacle shareholders, would have expected Federation to have been able to exercise the options, and to have exercised them, especially given that the options were deep in the money, and one series was to expire shortly after the bid closed.

The Panel considered ASIC's unpublished policy concerning such situations, and largely followed that policy. However, the Panel came to a different conclusion on the issue of whether Federation should be allowed to retain the excess shares. ASIC's primary reason for requiring Federation to dispose of any excess shares within 14 days was that Federation had not positively advised the market in its bid that it may seek to exercise the options, or apply to ASIC to allow it to exercise them.

The Panel decided under the circumstances of this application that it was reasonable to allow Federation to retain the excess shares because:

  • ASIC's policy, including the requirement for announcement of intention prior to the bid, was not public at the time of Federation's bid;
  • the Panel accepted the view that the market expected Federation to be able to exercise the options; and
  • there appeared no evidence that shareholders and optionholders were unequally or unfairly treated.

Reliable Power Inc announced on 22 January 2001 its intention to make a takeover bid for Pinnacle, and it was a party to the Panel's proceedings.

The sitting Panel is Les Taylor (sitting President), Trevor Rowe (deputy President), Maxine Rich.

Nigel Morris
Corporations and Securities Panel
Level 47 Nauru House, 80 Collins Street
Melbourne VIC 3000
Ph: +61 3 9655 3501